Things one middle-aged economist finds interesting

June 2011

The economy of Zimbabwe, which a couple of years ago was on the threshold of the greatest hyperinflation in history, has recovered somewhat.

Thanks to a decision by Tendai Biti, the MDC finance minister, to replace the Zimbabwe dollar with the American one, the 25,000 per cent annual inflation rate has now been slashed to around 2.5 per cent; as a result, staples like bread and cooking oil are back on the shelves, and can be bought with a few dollars rather than a brick of trillion dollar notes. Civil servants are being paid again, allowing schools and hospitals to function once more, famine in rural areas has gone, and the valuable tourism sector is also showing signs of renewed. Also welcome again under the power-sharing government are foreign journalists: The Sunday Telegraph's visit last week was the first in five years in which it was possible to get an official press badge - lack of which landed two previous correspondents for this newspaper in jail in 2005 and 2008.

But there's still terrible stuff happening there and there could well be a lot more to come.

Here, right here on this very blog, I have predicted repeatedly that the U.S. antitrust authorities would bring suit against Google. Suit hasn't been brought just yet, but by now you've seen the stories that the FTC is investigating. (To be fair, I predicted the DOJ's Antitrust Division not the FTC. But you won't hold a detail like that against me, will you?)

The investigation is applauded by dopey commentaries like this one in Time:

The power of Google to determine what information we see, and when, is enormous. Apparently, the U.S. government is worried Google has abused that power. . . . It is clear that Google has a tight hold on the Internet. And that has been clearer than ever in the past year. The New York Times has run a number of stories showing how companies have been able to boost their sales by gaming Google's search algorithms. When Google changed its algorithm, those sites fell off the search page, basically hiding them from the world. The stories also showed what lengths companies will go not to cross Google — and what they will do to try to make up. If that's not a sign of monopoly, I don't know what is."

Dear sir: Google's power to determine what information we see is akin to, in the old days, the power of a good reference librarian. That is, not so much and almost all to the good. And any user who feels exploited by Google can totally obliterate the "power of Google" in just one mouse click. Bing is fine as are any number of others. Any advertiser who feels exploited has--I don't know, this is just a rough guess--one zillion alternatives. As for power being evidenced by people wanting to kiss up to them: can we worry about U.S. Congressmen being monopolists and investigate them, too? (And what about . . . Oprah?!)

I’d argue that if a full-blown antitrust investigation does get launched, it may be a signal that Google’s market power has peaked. Remember when Microsoft went through its antitrust ordeal? It’s been downhill for them ever since. And now, just as social (and Facebook) is starting to take over from search as the fundamental way information is shared, discovered, and organized on the Web, the government is focusing on the last decade’s war.

I wouldn’t worry too much about Google’s marjet power. Technology has a way of overthrowing the powers that be more quickly and naturally than the government ever will.

In each of our three cases [IBM, AT&T, and Microsoft], the ultimate source of major changes in the competitive landscape appears to have been innovation and new technology – technology that was apparently not unleashed by the antitrust litigation. In each case, the government did not and probably could not see how technology would develop over time. Therefore, it was difficult for the government to design remedies that would accelerate competition when this competition developed from new technologies.

Finally, just because it's appearing coincidentally and because it makes very well the point of how evanescent market power is, particularly in tech markets, here's an article describing the plunge in fortunes of Myspace. Remember Myspace?

Ordinarily, one would have expected this development to produce hyperinflation of the general price level. However, the price level has increased quite moderately, and for a while many analysts warned that deflation was the greater risk. Despite a slight increase in the price level’s rate of growth in recent months, the index of prices paid by all urban consumers has increased by only about 6 percent in the three and a half years since the beginning of 2008. Not only has hyperinflation failed to appear; even garden-variety inflation of prices in general has been extremely low by the standard of recent decades.

Higgs acknowledges that Ben Bernanke--who I'd guess knows the history as well as anyone--has stated the Fed has the tools to soak up, at the necessary time, the excess reserves and prevent inflation.

But Higgs concludes that as an economic historian he's not ready to accept the latest "this time it's different" story. Given history, economic and otherwise, and especially given the track record of the federal government, that reluctance seems smart.

As I've laid out this week (part 1, part 2, part 3), the realization that a fairly simple, toxin-carrying bacterium could cause a "complex" and mysterious disease like hemolytic uremic syndrome came only with 30 years' of scientific investigation and many false starts and misleading results.